China and the Philippines

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advantages in these countries. Besides, the projects are also the output of China’s local labor surplus. Especially in SEA, the geopolitical and economic proximity of China and the SEA countries encourages China to launch as many projects as possible to help maintain its engagement in the SEA area through the Maritime Silk Road countries and make profit out of the aid activities there. On the other side of this relationship, Belt and Road countries would take a pro-China stance in exchange of aid for infrastructure.

While going through both World Bank and AIIB websites for co-financed projects, this thesis found that there is a considerable amount of co-financed projects in the SEA which fall under the category of water management and water-generated energy. Speculation could be made that some of these countries being allies with China outside the Bank could form a clout including China’s and these countries’ powers in the Bank, as some SEA countries hold a rather significant voting share. The following sections discuss how the projects tie the relationship between China and the Philippines and Pakistan by referring to media coverages that reflect sentiments on their relationships.

After that, the discussion on the actual numbers can continue to provide supporting details for continued growth of World Bank investments in the regions. Although the World Bank does not provide yearly country by country lending details in their reports, researchers could still find the lending commitment and disbursement data of the two major lending institutions in the Bank, the IBRD and IDA, in each region from its annual report. The reports also provide data on the World Bank’s total commitment in each region. The sections below will borrow World Bank’s data to discuss the total commitment changes in the two regions where Pakistan and the Philippines are located.

3.1 China and the Philippines

Since the year of AIIB’s official establishment, the Philippines, along with President

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Duterte taking office, has taken a different path from before: subtly downplaying the long-existing territory issue in the South China Sea with China, and was said to elevate its relationship with China in exchange of economic benefits from China’s aid in infrastructure and large-scale investment projects in the Philippines. Despite domestic oppositions voicing concerns on its continuing compromised maritime sovereignty, the economic benefits side seems to be maintaining its upper hand position in this dynamic.

This continuous need of large-scale aid originates from the so-called centerpiece program of the Duterte administration, the Build! Build! Build! (BBB) program, which according to the Philippines government official website “aims to usher the Golden age of infrastructure in the Philippines.”⁸ The program demands up to an estimated 9P trillion (USD 187 billion) to be fully implemented. China has pledged a total of USD 24 billion investment in majorly the Philippines infrastructure projects with both FDI and aid in 2016 and has been gradually realizing those funding over the years. Despite regular complaints of the slow materialization of the commitment, Xi and Duterte reached an agreement in 2019 in which China pledged a USD 169 million investment to be the “infrastructure renewal drive” in the Philippines. Xi publicly reiterated the funding purpose of the pledged investment to the Philippines, which is

“to pair the Philippine infrastructure drive with China’s own Belt and Road initiative.”⁹ It will make sense if China seeks the burden sharing of other countries through MDBs, especially when they have a self-led MDB currently at the scene as a node to expand its network influence.

Flood management is a longtime issue that needs addressing in Metro Manila, as the

8 Build Build Build Projects | Subic-Clark Alliance for Development | World within Reach. SCAD.

https://scad.gov.ph/build-build-build/

9 Ralph Jennings. (2019, September 6). In Bid for Friendship Renewal, China Offers Philippines More Development Money. Voice of America. https://www.voanews.com/east-asia-pacific/bid-friendship-renewal-china-offers-philippines-more-development-money

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project document from the AIIB described, ‘Flooding and other water-related disasters have the potential to undermine the Philippines’ strong economic gains and development outcomes.’¹⁰ As China and the Philippines improve bilateral relations and China expands economic activities in the Philippines with more FDIs, projects that mitigate environmental risks and improve safety of living are naturally China’s priority projects in the country. In 2017, the AIIB passed its first loan to the Philippines for the Metro Manila Flood Management project, which they strategically co-financed with the World Bank to merge their interest into existing institution values and to show that they comply with the standards of previous practices. The BRI focused AIIB also shares project risks with the World Bank while their shares of contribution are equal. The Metro Manila Flood Management project was co-financed in a fashion that the two banks split most of the total project cost, each contributing USD 207.6 million while the Philippines government bore the rest. However, the rating for the overall process of the project has recently been marked as moderately unsatisfactory by the World Bank due to slow disbursements. By the time the WB released the project report in November 2020, only 3.3 percent of the total funding had been used, and the case is supposed to be closed in 2024.¹¹

Despite being the second largest investor in the Philippines in 2019, which its official government media reported itself,¹² China has been continuously shunned by public opinions in the Philippines. There are three major skepticisms towards China: one is the continuous strategic efforts to undermine the Philippines’ sovereignty in the South China Sea, another is

10 Republic of the Philippines Metro Manila Flood Management Project, Project Document of the Asian Infrastructure Development Bank, accessed from https://www.aiib.org/en/projects/details/2017/approved/Philippines-Metro-Manila-Flood-Management.html

11 Disclosable Version of the ISR, Metro Manila Flood Management Project - P153814 - Sequence No : 07 (English), World Bank. http://documents.worldbank.org/curated/en/645611605831872441/Disclosable-Version-of-the-ISR-Metro-Manila-Flood-Management-Project-P153814-Sequence-No-07

12 huaxia. (2020, February 20). China becomes second biggest foreign investor of Philippines in 2019 - Xinhua | English.news.cn. XINHUANET. http://www.xinhuanet.com/english/2020-02/20/c_138801875.htm

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the barely materialized project commitments, ¹³ the other is the environmental and displacement risks brought upon the locals by implementing those projects.¹⁴ Several media have quoted Philippine officials commenting their doubts on China’s pledged loans and investments and covering stories where the locals express their resentment of China’s engagement in the country.¹⁵

Local key media outlets such as the Manila Times and the Inquirer.net represent different voices of the China-Philippines relationship. The Manila Times praises the fact that the improving ties between China and the Philippines and the promised investment corresponding to the BBB program “not only created many new jobs for Filipino workers but also helped in the country’s economic recovery,”¹⁶ while the Inquirer.net mostly reports neutral to negative opinions on the topic.¹⁷ This thesis holds the perspective that although the opinion gap between the Philippines government and its constituents is large on the topic, officials are still maintaining the direction of warming ties and closer cooperation not only on bilateral government-to-government projects but also large-scale development projects through the MDBs.

13 Desmond Ng. (2020, December 19). ‘They’re taking him for a ride’: Has Philippines gained from Duterte’s China pivot? CNA. https://www.channelnewsasia.com/news/cnainsider/philippines-president-rodrigo-duterte-china-pivot-investments-13801780

14 Ana P. Santos. (2018, March 14). Filipinos resist China-funded mega dams. DW.COM.

https://www.dw.com/en/filipinos-resist-china-funded-dams-amid-beijings-growing-clout-in-southeast-asia/a-42973170

15 Michael Beltran. (2020, January 21). Thousands of Filipino Families to Be Displaced by Chinese-Backed Construction Craze. The News Lens International Edition. https://international.thenewslens.com/article/130302;

Melissa Luz Lopez. (2020, June 8). China’s loan, investment pledges unlikely to be fulfilled under Duterte’s term – Carpio. Cnn. https://cnnphilippines.com/news/2020/6/8/China-investment-pledges-unlikely-fulfilled-Carpio.html;

Sebastian Strangio. (2020, September 11). Controversial China Projects Reveal Philippine Rifts. The Diplomat.

https://thediplomat.com/2020/09/controversial-china-projects-reveal-philippine-rifts/

16 Javier Joe Ismael. (2020, October 21). PH-China ties led to more jobs – envoy. The Manila Times.

https://www.manilatimes.net/2020/10/22/news/top-stories/ph-china-ties-led-to-more-jobs-envoy/783697/

17 Ben O. de Vera. (2017, September 28). China-led AIIB OKs first PH loan for Metro Manila flood control.

INQUIRER.Net. https://business.inquirer.net/237611/asian-infrastructure-investment-bank-aiib-metro-manila-flood-control-china-loan-project-infra

Cathrine Gonzales. (2020, September 29). Carpio: Only less than 5% of China’s promised loans, investments to PH happened. INQUIRER.Net. https://globalnation.inquirer.net/191226/carpio-only-less-than-5-of-chinas-promised-loans-investments-to-ph-happened; Ben O. de Vera. (2020, November 28). Slow progress of the flood project disappoints lenders. INQUIRER.Net. https://business.inquirer.net/312633/slow-progress-of-flood-project-disappoints-lenders

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To check the change of the amount of regional loans, this thesis went through World Bank annual reports from 2013-2020 to get a closer look at how loans to East Asia and the Pacific fared over the years. There was a spike in FY16 when loans to the area reached a new high in the recent ten years. It was also when the Asian Infrastructure Investment Bank was officially established, recognizing the infrastructure gap in Asia which the World Bank and the Asian Development Bank could not satisfy alone.

Table 3. 1 World Bank’s Commitments and Disbursement to the East Asia and Pacific Region for Fiscal 2013-2020

FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Commitments

IBRD 3,661 4,181 4,539 5,176 4,404 3,981 4,030 4,770

IDA 2,586 2,131 1,803 2,324 2,703 631 1,272 2,500

Disbursements

IBRD 3,621 3,397 3,596 5,205 3,961 3,476 5,048 4,679

IDA 1,764 1,459 1,499 1,204 1,145 1,252 1,282 1,589 Source: Organized by the author with reference to World Bank annual reports from 2013-2020 In 2015, the leading sector which the World Bank disbursed its loans in the region was Water, Sanitation, and Flood Protection ($1.2 billion), taking up 19% of the approved loans that year.¹⁸ Throughout 2016 and 2017, Water, Sanitation, and Flood Protection maintained among the top 5 sectors,¹⁹ as we also saw a significant 24 percent increase in the sector in 2018 right after the Metro Manila Flood Management Project was approved by the board in

18 World Bank. 2015. World Bank Annual Report 2015. Washington, DC: World Bank. doi: 10.1596/978-1-4648-0574-5. License: Creative Commons Attribution–NonCommercial– NoDerivatives 3.0 IGO (CC BY-NC-ND 3.0 IGO).

19 World Bank. 2016. World Bank Annual Report 2016. Washington, DC: World Bank. doi: 10.1596/978-1-4648-0852-4. License: Creative Commons Attribution–NonCommercial– NoDerivatives 3.0 IGO (CC BY-NC-ND 3.0 IGO);

World Bank. 2019. World Bank Annual Report 2019. Washington, DC: World Bank. doi: 10.1596/978- 1-4648-1470-9.

License: Creative Commons Attribution–NonCommercial–NoDerivatives 3.0 IGO (CC BY-NC-ND 3.0 IGO).

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September 2017. The 2018 report dedicated a paragraph highlighting the project as enhancing

“sustainable infrastructure” and “climate resilience”.²⁰ The project was also included in the 2017 annual report of AIIB, which classified the project as a Sustainable Infrastructure priority project, bringing the China-led MDB closer to the ubiquitously recognized sustainable development goals and environmental/climate practices.²¹ The logic of this project could be understood as China’s support in this project coming from outside the World Bank to influence within.